12 Merchant Cash Advance Red Flags to Catch Before You Sign

Regulators have been explicit about how MCA abuse happens. The Federal Trade Commission's cases against Yellowstone Capital ($9.8 million settlement, 2021) and RCG Advances ($2.7 million, 2022) centered on misrepresented terms, undisclosed fees, and confessions of judgment used to seize assets. In January 2025 the New York Attorney General obtained a judgment of over $1 billion against Yellowstone and affiliates, finding effective rates as high as 820 percent. The twelve flags below are the patterns behind those cases, plus the everyday ones we see on offers merchants send to our free offer checker.

Red flags on the offer sheet

1. No total payback number

An offer that shows the advance and the daily payment but not the total purchased amount is hiding the cost. Multiply advance by factor rate yourself and write it on the sheet. If the funder cannot state it, walk.

2. Fees that are not on the offer

Origination, underwriting, ACH program, wire, "platform," and broker fees are all common. They belong on the offer sheet with a net funded amount. Fees that surface in the funding call or the contract are the single most common complaint we hear. See how fees change the real cost in our factor rate guide.

3. Guaranteed approval

No funder that reads bank statements guarantees anything before reading them. "Guaranteed" and "pre-approved" language usually means the price will be set after you are committed.

4. Pressure to sign today

"This rate expires at 5 pm" is a sales tactic, not an underwriting fact. A file that qualifies today qualifies tomorrow. The purpose of the deadline is to stop you doing exactly what this article recommends.

5. A term that does not match the pitch

Divide payback by the payment to get the number of payments, then convert to months. Offers pitched as "six months" that compute to four and a half raise the annualized cost by a third without changing a single number you were shown.

Red flags in the contract

6. Confession of judgment

A confession of judgment (COJ) lets the funder obtain a court judgment against you without a hearing the moment they allege a default. New York banned enforcing COJs against out-of-state debtors in 2019 after widespread abuse, and the FTC's RCG case targeted the practice directly. Some funders still include them for merchants in states that allow it. Ask for it to be struck. A funder that will not remove a COJ is pricing in the ability to take your assets, not just your receivables.

7. No reconciliation clause, or one that is impossible to use

The legal basis for an MCA being a purchase rather than a loan is that the funder shares your revenue risk: if sales drop, the payment should adjust. A contract with a fixed daily ACH and no workable reconciliation right, or one that requires you to prove revenue decline within 48 hours with notarized documents, is a loan in disguise with a loan's obligations and none of its protections.

8. Default triggers you can trip by accident

Read the events-of-default section. Common traps: changing your bank account, a single rejected ACH, taking on any other financing, or a drop in deposits. Some contracts add default interest or accelerate the full balance on the first missed payment. A clean contract gives you a cure period and lists defaults you would recognize as real.

9. A personal guaranty that guarantees repayment, not performance

A performance guaranty (you promise not to divert receivables or breach the contract) is standard. A guaranty of the full purchased amount regardless of your business's revenue converts the advance into personal debt. Know which one you are signing.

10. Encouragement to stack

If the rep suggests keeping your existing advance and adding this one, they are proposing a second position that most first-position contracts prohibit, at a higher price, with a combined payment nobody has checked against your deposits. Our stacking guide shows the math on what that does to cash flow.

11. Requests to keep your online banking login

Read-only statement access through a verification service is normal underwriting. A rep asking for your username and password to keep on file is not. Change the password after any verification is complete.

12. No early payoff policy in writing

You should be able to get a payoff letter within a few business days at any point. A funder that will not commit to that in the contract, and will not state whether early payoff earns a discount, is protecting its ability to make paying off difficult when you want to refinance or consolidate.

What a clean offer looks like

• Advance, factor rate, total payback, payment amount, frequency, and term all on one page.
• Every fee listed, with the net funded amount written out.
• A prepayment discount schedule or an explicit statement that there is none.
• A reconciliation clause in plain language with a realistic process.
• No confession of judgment. A performance guaranty, not a repayment guaranty.
• Default events you would recognize as actual defaults, with a cure period.
• A written payoff-letter commitment.
• Time to review. A funder confident in its price does not need you to sign in an hour.

How this guide was produced. Written by the team that built our statement-reading underwriting engine. Cost figures are computed from cash-flow math (IRR on the actual payment schedule), not quoted from marketing pages. Nothing here is legal or financial advice.